India has been correlating entrepreneurs and investors for many years. Getting huge grants from governments as well as private sectors has encouraged many young entrepreneurs to start their own business in India.
According to one India startup report, India is the 3rd largest startup ecosystem in the world.
Talking about the present scenario, the economic system is boosting the young entrepreneur’s aspirations to have a futuristic approach and a well-planned strategy to ignite a new business.
More often, startups depend on external help and have promoted the concept of raising funds more than self investing schemes. As per the recent study, over 94% of startups fail, and the major reason is lack of funding.
This blog’s main motive is to help the potential and motivated entrepreneur by introducing different fundraising platforms. Before advancing, let us first understand what startup funding is.
What Do You Mean By Startup Funding?
To start a business, you need to be financially stable. Funding is the initial help in the form of money to either start or runs a business.
Money is the lifeline for any business as it is the primary source to start any new business.
There is no doubt in the fact that every business requires balanced accounts to get through all the expenses, and they need someone to help them with this monetary value. In fact, without moderate financial help, there is a chance of business leading towards disappointment. To escape from this problem, the entrepreneur tends to seek financial help from the organization’s people. This financial help might be in the form of loans or shares in the company’s ownership.
Simply put, fundraising is the process of asking for financial help from outside to manage the expenses, development, operational tasks, and growth graph of the business.
How Fundraising For Startups Works?
As discussed, there are two ways to get funds for your business.
1. Inform of Debts
2. By sharing the company’s partial ownership
Debts are the loans granted by big organizations or banks as the financial help towards the startup’s progress. These loans are to be returned in the predefined period of time, along with the decided rate of interest.
But the drawback that lies with this fundraising way is that you are obliged to return the borrowed amount all by yourself. Also, getting a loan is restricted to the businesses already have a good market reputation and a smooth cash flow.
To reduce this risk of paying debts, many business owners get financial support and raise funds by sharing the company’s ownership. In this case, the investors get some shares of your company, and you are not obliged to return the amount back to them.
Usually, investors cash out their investment by exiting the company and selling the shares of the company that he owns. The shares are normally sold when these shares’ value is higher than what they were bought for.
Different Platforms To Raise Funding
1. Bootstrapping or Self-Investment
This option is available to every entrepreneur where they can start their business from the first step with their own money and manage further expenses with their sales.
This is the most effective way to finance your startup, as you might face trouble while getting funds from outsiders. You can even ask for funds from your friends and family as they are unlikely to be harsh on you to get the borrowings back.
It is the concept of raising funds from more than one investor at a time, wherein the investors grant you the funds based on the goals of your business, pre-order of the products, working plan, and future success plans.
It is also beneficial as the investors can buy your product in advance, which will lead to enhanced awareness of your business products and services.
3. Angel Investment
Many investors with abundant cash are always keen to invest in a promising startup or business. These helpful people are called Angel investors. They either work alone or in large networking groups to finance the potential entrepreneur and earn their share when the business reaches its goal.
Some big companies that earned success with these investors are Google, Yahoo, and Alibaba.
4. Venture Capitalist
Venture capitals are the funds that are managed professionally and are invested in companies with high potential. They usually invest in the form of shares from the small businesses that have grown out from the startup phase.
They exist once the company releases its IPO. the best part is that these capitals provide expert consultations and mentorship to the businesses.
5. Bank loans
The most authentic place to get funds from is banks. Banks provide funds in two ways;
Working capital, to run your business, and generate one cycle of revenue in a smooth way.
Funding, on the bases of your business plan and project report to start a business.
Getting funds and capital for your business is important and advantageous only if they are utilized in an efficient way.
Even you are self-sufficient to start a business; outside help is still needed to smooth business transitions in the long run.